Weekend Reads for Investors: Topsy-Turvy Edition

All is topsy-turvy on the world stage. Why? The president of the United States and the barrage of executive orders he has issued, among other choices, have introduced volatility into the global system.

Whether this turns out to be good or bad is unknown at this early juncture. But the articles below are likely to be useful to you as investors no matter what is happening in world politics.

Investing

I serve on the board of a small technology company that has, of course, been trying to raise capital for its business model for the last four years. Its encounters with Silicon Valley have been a study in the many genres of theater: drama, comedy, and tragedy. This story catalogs some of what we have found: Silicon Valley may have an ethics problem. (Fortune)

In the post-Great Recession era, the European Union, eurozone, and the International Monetary Fund (IMF) are all woven together. If they composed a sweater, it would be poorly knit and incapable of keeping economies dry or warm. Recently, the IMF gave the eurozone bad marks for its record keeping, ethics, and borrowing practices. Funny how these all frequently go hand in hand. From an investor’s gossip perspective, at least the easy money handed out to countries in Europe was debt and not equity or there wouldn’t be much to talk about. (Deutsche Welle)

Several years ago, I wrote a post about anecdotal signs of securities market bubbles. The rollback of investor protections in new securities issuance is a key indicator. Normally investors swallow these asymmetric covenant terms whole, but not this time I am happy to say. (Enterprising Investor, Financial Times)

For a more micro-investment focus, this story explores why Medium, the darling media company of the millennial set, has failed to disrupt its industry all that much. Hint: Fantasy collided with reality. For what it’s worth, I read Medium almost daily because its authors voice perspectives strongly in accord with millennial values. As an investor, this is useful. (Bloomberg)

Closing out this category is a meaningful thought piece about how to compete in the increasingly automated digital economy. The key takeaway? Lifelong learning is an economic imperative. (The Economist)

Economics

Speaking of economics, have you ever wondered if there is any value add from economic theory? Put another way: Why not create economic theory based on data rather than the other way around? And still another way: There is a reason that economics is called the dismal science. Long-time readers know that I am a fan of Der Spiegel’s frequent use of interactive data charts. Here is one I found about demographics and economics that also features a quiz. (Der Spiegel, Bloomberg)

Last, those data wizards at Calcbench examined US publicly traded companies (PDF) to see how much of their revenue was generated from outside the country. It’s a significant proportion, and suggests that many may be nervous about the isolationist tenor of the current White House. (Calcbench)

Behavioral Finance

Economists should base their theories on data. Of course, that is exactly what behavioral economists have done for decades. But theory and models can’t capture everything. For example, how do you account for the value of trust in lubricating transactions between buyer and seller? Without trust there are fewer transactions — or no transactions — and the price of goods and services is higher, too. So what contributes to trust in economic exchanges? Here is one often overlooked factor that is present in many markets. (BBC)

Quantitative Methods

When I interviewed with Andrew Davis at Davis Selected Advisers almost 20 years ago, he asked me what skills I had that would be useful as an investor. I replied, “I always learn from my mistakes, and I have superior pattern recognition.” Why is pattern recognition essential for investors? This piece offers some insight. While I dislike the “hive mind” moniker, this new way of looking at data offers critical insights: MIT scientists are trying to use unique ways of asking questions to unlock the power of the expert opinion buried within normal datasets. (NewCo Shift, Futurism)

Environmental, Social, and Governance (ESG)

The following two stories are about economic entities behaving badly, and highlight the important role governance plays for investors. The first explores how Deutsche Bank made a loss of €367 million disappear. Many people suspect vast fraud in China’s economic data. What’s the cause of such falsification? I think it’s a result of the incentive structures in place. (Bloomberg, Enterprising Investor, Financial Times)

Fun Stuff

Finally, this fascinating piece discusses how our minds are organized differently based on the language we speak. It comes courtesy of futurist David Houle, who recommended it to me over a recent meal. Thanks, David! (The New York Review of Books)

Music

I listened to or was otherwise influenced by the following artists in authoring this post: The Gladiators; Pandit Chandrashekhar; Kayode Olajide; The James Cotton Blues Band; The Mad Lads; Jackie Wilson; Jimmy Lee; The Doors; Donovan; Black Sabbath; The Beach Boys; Common; Paul Kimble and Andy Mackay; Rufus and Chaka Khan; and Big Joe Turner. (Isn’t iPod shuffle great?)

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©iStockphoto.com/JLGutierrez